IMF Dims U.S. Outlook, Warns Against Dramatic Spending Cuts

International Monetary Fund Managing Director Christine Lagarde speaks during a news conference on Tuesday in Washington.

Haraz N. Ghanbari
/ AP

Originally published on July 3, 2012 1:05 pm

Like the Federal Reserve before them, the International Monetary Fund lowered its growth projections for the U.S. economy. The Los Angles Times says that in its annual report, the IMF calls the U.S. recovery "tepid" and warns U.S. lawmakers that hitting the brakes too hard on spending and tax cuts could threaten the weak recovery both at home and abroad.

The Times reports:

"The IMF said the U.S. economy would grow just 2% this year and annual growth would remain below 3% until 2015. The unemployment rate would hold at 8.2% this year and improve only slightly to 7.9% next year and to 7.5% in 2014.

"Those forecasts are on the low end of the range projected in June by the Federal Reserve, which saw annual growth of 3% to 3.5% in 2014.

"The financial strains in Europe have increased the risks to the U.S. economy, with the nation 'vulnerable to contagion from an intensification of the euro area debt crisis,' the IMF said."

The IMF also had a dire warning for Congress: If it fails to prevent the tax increases and spending cuts set to take place early next year the U.S. economy could go into recession.

The IMF estimated that the so-called "fiscal cliff" could cost the country 4 percentage points of growth, according to the AP.

The AP adds:

Christine Lagarde, the IMF's managing director, said the impact on the U.S. economy "would be severe with negative spillovers to the rest of the world."

Congress and the Obama administration should take steps to reduce the deficit, Lagarde said, but the cuts should be phased in over time.

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